The Costs of Y2K

By Chris Farrell

Remember the dot-com boom of the 1990s? It seemed everyone with a laptop and an idea could strike it rich. The demand for digital workers soared. Long-time computer professionals hopped from job to job, pulling down more money with every employer. Newly minted college graduates juggled multiple job offers. But when the Y2K computer problem emerged, business and government realized there still weren't enough information technology workers on hand to find and repair the glitch. The quick fix? Hire computer professionals overseas. And that temporary solution has permanently changed the global economy.

"Y2K was huge in getting the ball rolling on offshoring," says Paul Saffo, the director of the Institute for the Future, a high-tech think tank in Silicon Valley, "but once they went overseas, they discovered it's not just a matter of cost. These programmers overseas are often better than the best you can get in the United States."

India became the offshore capital. While other countries also had well-educated, English-speaking tech workers, India's programmers had an odd advantage. Import barriers in the 1980s meant Indian tech workers learned on old machines. So they were experts in the old programming languages they needed to know to fix Y2K.

AnnaLee Saxenian is dean of the School of Information Management and Systems at the University of California, Berkeley. She studies high-tech entrepreneurship.

"I think the importance of Y2K," says Saxenian, "was overwhelmingly about establishing Indian companies' reputation among U.S. customers and helping begin a set of customer supplier relationships that have simply taken off in the last four years."

Of course, Y2K contracts ended in 2000. Yet many Indian companies took advantage of their now sterling programming reputations to negotiate for more sophisticated work.

"India is now growing at 70-80 percent a year in offshored services," says Rafiq Dossani, senior research scholar at Stanford University. "Services which are maintaining an accounting system, maintaining an HR system, doing claims processing, that's growing easily at 70 percent, maybe even higher."

Offshore also came onshore during Y2K. Cities and towns like Mountain View California became home to Indian workers brought over to work to fix the bug. Shankar Muniyappa directs information systems for the Indus Entrepreneur. It's a networking base for the Indian high-tech Diaspora.

"Many of us believe still believe," says Muniyappa, "this is the place where you need to be if you want to be middle of innovation."

Some 30,000 Indian information technology professionals now live and work in the Valley.

"At least 25 percent of the start ups have Indian employees at fairly senior levels working for them," says Dossani. "There's a whole infrastructure therefore being built around them because it's a substantial number now, so you see shopping malls, you see business services, and so on, catering to this particular immigrant community."

That community is adding vitality to the American economy. Still, many American high-tech workers are feeling threatened by the offshoring of white-collar jobs. The numbers are murky, but some 370,000 non-manufacturing jobs moved overseas in the past four years, with most of the information technology jobs going to India. Salaries are down too. But ask an economist what's holding back U.S. job growth and most will say, don't look at outsourcing, look at productivity gains. Businesses today are simply more efficient. They don't need as many workers. And those productivity gains are also in part owed to Y2K.